Market Discussions

The prominent trading philosophies

Many times I have seen people confusing trading methods and putting everything in the same basket.

This article will be about showing various approaches to trading, in a cladistic way.



Trading
   |
   |-- Fundamental analysis
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   |-- Quantitative analysis
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   \-- Technical analysis
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      |-- Analysis by using indicators
      |  |
      |  |-- Purely indicators driven
      |  |
      |  \-- Using indicators and few candle bar patterns
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      \-- Analysis by studying price action
         |
         |-- Helped by few indicators
         |
         \-- Naked chart analysis
            |
            \-- Classic PASR, based on supports and resistances bounces
               |
               \-- Advanced PASR, where supports and resistances are given more degrees of priorities
                  |
                  \-- Advanced price action analysis including bars setups validation, location, market macro behavior
                     |
                     \-- Conservative double patterns confirmation price action analysis (WPD-WPG)


If you have any questions, want examples or anything, feel free to ask!

There are few things more annoying than hunting for the right books or papers, if they're hidden among a few dozen crappy publications. Especially if you don't quite know enough about the topic to evaluate the quality.


Out of curiousity:

A lot of this stuff appears to be more like a collection of empirical recipies. And its not necessarily self-evident how the authors came up with it. While cookbooks are fine for many applications, they don't necessarily convey a lot of deep understanding.

My usual reading material tends to put new methodologies into the context of the existing state of the art and will define experimental setups and evaluation methods. If its worth publishing there usually is some sort of measureable benefit over the alternatives. I'm not exactly sure if thats even possible on this topic, but science has been applied to pretty much everything in our lifes (atleast somebody tried to atleast once).

Is there literature around which takes somewhat more scientific aproach ? Anything with a reasonable number of citations and generally being accepted as a solid source of information ? Any names or journals to look out for ?
Something which gives a good top level view, covering the basics while giving refences to more specific publications ?


TL;DR;
I'd love to be pointed at some peer reviewed publications.

Here is a decent list of journals. For quantitative research, some of the cutting edge topics include quantum based economic hypotheses and behavioral finance discussions.

[url]http://businesslibrary.uflib.ufl.edu/financejournals[/url]

About trading or about general "curves" and "competing forces" / mass sociology manipulation?

The former is described in the first posts of this thread.

The more scientific background is sort of available through text books explaining planning, factors and slowly trespass into automation super specialty like MODBUS (or other many industrial standards) real time data acquisition, set points storage, measures and samples management and quality assessment, acquired curves smoothing, algorythms and prediction.
I had a colleague of mine who had to engineer and create a total automated quality control and self feedback computer unit for a Brazilian multi-brand cars new factory.
The end product (brake pedals) had to be certified due to its life critical role in cars. The computerized control unit (I built part of it) involved all life critical components including an extensively huge robot arm holding an huge laser focused with partly hand crafted quartz crystal (the arm could kill 4-5 people just with a swing, the laser can cut through steel like it's hot butter).

After *half a year* of work the software (composed of 20 or so subsystems and it MUST never crash nor stop or must securely self disable every machinery if it did) looked completely identical to a trading platform.

My colleague explained me how the various test identified recurring force and pressure levels that repeated time and again and smoothed curves (he used Bezier) could "make sense" of both what happened and predict the next variations.
I even helped him with some bits that would compute moving averages of measured data points. The plotted result was totally alike an EvE in game market chart with the moving averages and all (minus the Donchian channel)

That's sort of classic, math indicators based Technical Analysis.
The difference is that RL markets - unlike quasi-repeatable measurement on materials - are lively, mass groupthink semi-intelligent auto-fractal entities and actively counter any attempt at engineering ways to predict where they go.

Finally mass sociology manipulation resources: I don't know where to find any, they are *used to control the population* after all, certainly nobody who does that is willing to share, so I am not sure if anyone ever cared to list the details. I suppose they'd resemble a modern and expanded version of "De Principatibus" by Machiavelli.

I am just a dumb practitioneer, while I love to learn the mechanics behind it all, I want foremost to make money out of it.

I suggest you read:

Trading Exchanges: Market Microstructure for Practitioners

which is a conversational, light math description about how the various kinds of market institutions, structures and players work together. It also covers the various kinds of traders.

The link is to a review of that book I have written by myself plus further links.

I don't have examples of EvE trading gone bad but I have one of RL gone "suck".

I'll also add that there are various moments when a trade can go bad:

1) Downright borked the analysis. This happens expecially in the beginning, the most common factor is having not spotted a geometry pattern. I.e. you go short and only later find out you missed seeing you were in a bullish flag (the nasty things are formed by a sharp downtrend in the middle of an uptrend).

Only way to fix this is to spend time at the screen and sharpen your eyes.

2) Self made idea that price HAS to go from here to there, without considering price does what it wants, when it wants, anytime it wants. So one of the first things you learn is to forego your opinions and just WATCH.

3) Born of the above, the idea you predicted or pretend to predict price. Trading does not work like that unless you are a JP Morgan huge trader able to manipulate the market by yourself.
There's no way to precisely predict price, trading is not a "prophecy game". You look at some patterns that *often* mean that price is about to do something and then you have to *follow* (not predict) what price does.

In fact it's quite humorous seeing people stating how I perform voodoo, when I actually *react* to price after it moved and I just invest on price's delays and inertia.

Imagine trading as being a function with infinite solutions for x and y. There are *few, very rare* configurations of x and y that have a known outcome. You create a plan that requires the market to first fall exactly in one of those rare configurations (i.e. "market broke thru a range market and dipped back on top of it and placed a bullish pin bar"). Nowhere is the market "due" to "obey" your wish and tomorrow show that setup. Most of the time it won't. But if it does then your plan may go in effect. If the coordinates aligned and matched your plan then you KNOW that that pin bar will make price rise a bit (impossible to know how much or for how long) so there you can enter the market. Money management (see later) will have to actually deal with what happens next and it's another purely reactive (i.e. no voodoo) action again.


4) Market decides to slow down to a crawl. Then you may lose patience or just decide to exit with a small loss so you can put money to actually work again. This is the RL example I have saved somewhere and will go find.
Of course Murphy's Law makes so that price immediately resumes at full speed the instant you gave up and quit.

5) Money management. This is the hard part of trading and you won't find but super-rare examples of it. With practice, finding the correct entry point and guessing the direction becomes simple (but not easy). Apparently this sounds good, doesn't it?
But no, it's not so easy. Once you are in the trade you MUST take decisions. Price had to go from A to B but it stalled right 2 days after it took off A. What to do now?

The "what to do now" is the hardest challenge and completely makes the difference between the guy who will:

- let price run and the next day it turns back and goes to stop loss and he loses in a trade he was winning.
- take home a very small profit. He *thinks* he's gaining but cutting wins short makes you lose on the long run because 1-2 loss trades and you lose what you gained in 10 "hit and run" quickies.
- takes partial profit, moves the stop loss in a conservative but now coward location, reads the bars tails to find the market sentiment and leaves a partial trade running. That guy will be profitable in the long run.



Typical EvE trading examples that do not even need anything except the in game graph to be shown:

1) You get in the simplest situation of all: a nice uptrend.
But now there's a dip. What do you do?

- Is it just a dip or the beginning of a trend inversion ready to eat away all your profits?
- If I dump my stock, will I quickly find out that price will easily recover and resume its trend for 1 whole month, leaving me face palming at the missed profits?

Money management will make the difference even in EvE.


2) You have a wagon of stock. There's a quite sharp down swing (big dip).

- What do I do now? Panic sale and lose big time?
- Will the dip end in 3 days and then price resumes rising and I'll eat my hat?


3) An item like i.e. Zydrine has tanked for 1-2 months now and gets to a very low price.

- Do I buy it? Or will it keep tanking for another month leaving me loaded with unsellable stock?
- Did it invert direction yet?
- "They all say it's just about buying low and selling high, but how do I know when low is really the lowest where to buy and high is really the highest I should sell at?"


All of this is about practice, known patterns recognition and money management. And more money management.

Its only soul crushing if you allow it to crush your soul, Easily said but here is an easy example of how to protect your well being.

Just like in EvE, one hand must wash the other and vice versa, By having more then 1 source of income, you no longer feel stress when one source goes into the negative.

A good job, or perhaps a good online resale business, will soften any blow, even if its significant and vice versa, where online trading can soften the blow from being laid off or something going wrong with your supply chain.

Savings, and a dual source of income failing all at the same time is less likely then getting hit by a truck, while being mewed by a polar bear in the middle of the Gobi desert.

In the next weeks I am going to write some new articles.

I will try to reach a wider audience, maybe by using both in game charts and OHLC charts.
My intentions are two:

1) Keep bringing examples about how RL and EvE markets have many points of contact.
Now there's also Guild Wars 2 market to check out as well.

It misses some EvE features (in game charts for every item, data export) but it has some more striking similarities with RL markets:

- proper listing fee that discourages perma-relist (aka 0.01 ISKing),

- no timeout between orders,

- huge, huge, H U G E liquidity. Trading certain GW2 items is like trading mini S&P futures: extremely fluid market, price continuously goes up and down like in RL (not in sparse "steps) like in EvE so it "takes" your orders even if they weren't the lowest of the low. Thus swing trading becomes even more powerful.

2) Spread economy and markets consciousness among the MDers.
I know "knowledge is power" and the value of "asymmetry in information" therefore I am not surprised some people are quite against my liberal give away of their coveted strategies.

But this is a game, games are born to entertrain and to teach and I wish to give to the other players something of mine.
Call me sick (or Christian ?), but I enjoy sharing and giving. Sooner or later you'll get back more than you shared and gave away anyway, something I personally experienced both in EvE and in RL.

Here is something my Twitter channel members received earlier.

It's a simple schematic about how even a trader with simple knowledge of the markets may trade with expansive profit.
Of course it works for EvE markets, if I get some spare time I could even do the same thing for some EvE commodity later.

Basically all you have to do is to learn some basic patterns and draw BRN (Big Round Numbers) lines. That is, you don't even have to really learn how to find and plot "price levels", just to use what's fixed and readily available.

Then you look at the weekly chart. You must look at a closed bar, that is, if it's Thursday you have to check the bar that closed at the end of the previous week. If a bar on the weekly chart crosses a BRN then you switch to the daily chart and just look for an obvious pattern in the same direction of the weekly trend and weekly bar close.
Example, if the previous week price broke and closed below BRN 1.500, then from Monday look at the daily chart for a bearish price action pattern (any will do) and if it happens, then open your trade.

Here are two recent charts showing with great detail, drawings and comments the whole thing:

Chart 1.

Chart 2.

Any constructive comments are welcome!

Edit: the full method with videos, many examples and much more are available on a private forum. It's not in English, however. You should still be able to understand how it works since it's closely similar to what I have been explaining on this forum since a year or so (WPD-WPG method).

Another analysis using just BRNs and nothing else: Megacyte.

Here's the trade triggers you'd have got if you used this simplified method to trade that commodity.

I also included two short opportunities (the last two trades), just to show the method in action. I wish EvE allowed to actually profit off shorting.

The first is the weekly chart.

It shows the structures used in the daily chart to determine the MM (money management) and targets (where you take partial profit).

Here's the heavily commented daily chart.